If your mental map of the global economy puts emerging markets on the periphery and developed markets at the core, then developments in the global travel industry are set to turn you inside out.
By 2023, according to a new study by Oxford Economics, the “emerging” world will dominate global air traffic, accounting for 51 per cent of total traffic, up from 44 per cent in 2013 (see chart). The main drivers of this trend will be a rapid upsurge in international travellers from China, Russia, Brazil, India and Indonesia who spend at a quicker pace than developed world counterparts. Continue reading »
A manufacturer of construction materials has become the first Chinese company to default on a domestic junk bond, a state-owned Chinese newspaper said on Tuesday, compounding investor concerns over which mainland issuers could be next to miss debt repayment obligations.
Xuzhou Zhongsen Tonghao, based in the prosperous but highly indebted province of Jiangsu, was unable to meet interest payments on Rmb180m (US$29m) in bonds it sold to domestic investors last year, according to the 21st Century Business Herald, a state-owned newspaper. The missed interest payment was estimated at Rmb18m, given the 10 per cent coupon on the bond, and took place last Friday. Continue reading »
Real estate sales in China appear to have slumped during March, compounding investor concerns that more smaller, weaker property developers may be heading for debt defaults.
Data from 42 cities monitored by China Confidential, a research service at the Financial Times, showed that sales volumes during the first 23 days of March were down 34 per cent from the same period a year earlier. Continue reading »
Chinese steel mills were suffering a medley of woes in mid-March as sales slowed, production levels slumped and profits plunged, according to an investment bank survey published on Tuesday that foreshadows the rising risk of debt defaults in the world’s largest steel producer.
Macquarie Commodities Research, quoting a proprietary survey of Chinese steel mills and traders conducted in mid-March, found that large, medium and small steel mills were all enduring a contraction in orders compared to the same period in February, and profits had declined to historic lows. Continue reading »
By Diana Choyleva, Lombard Street Research
China’s first corporate bond default in recent history is only the first step on a difficult road of reform. Much like the removal of the floor under the bank lending rate last year, allowing the default of Chaori Solar Energy Science and Technology Co. was the easy part.
It has been dubbed China’s ‘Bear Stearns moment’ by some and its ‘Lehman moment’ by others. It is likely to be neither. Continue reading »
China’s early manufacturing sentiment reading – the Flash purchasing managers index – came in at 49.6 on Thursday for January. That sounds bad – it’s the first sub-50 reading since July 2013, and is weighing on market sentiment quite heavily.
But how bad is it really? There are arguments for optimists and pessimists alike. Continue reading »
So, China’s gross domestic product grew by 7.7 per cent in 2013. Much media comment has focused on how this performance, by Chinese standards, is relatively lacklustre. It is, together with last year’s 7.7 per cent expansion, the lowest growth rate since 1999.
However, there is another perspective. A quick look at the International Monetary Fund’s list of countries’ GDP numbers shows that China grew last year by an amount somewhat smaller than the size of the entire Indonesian economy but larger than Turkey. Continue reading »
The 14th in our series of guest posts on the outlook for 2014 is by Andy Xie
The third plenum of the 18th Party Congress issued an ambitious reform program to transform China’s economy by 2020 into one that relies on market forces rather than government to allocate resources. Launching the program, however, is hampered by the fragile nature of the economy today. Since 2008 China has depended on a vast property bubble to fund fixed asset investment that leads the economy. Ambitious structural reforms usually involve a period of economic slowdown. Doing so amidst a bubble economy may trigger a deep downturn. This is why financial markets have been focusing on the downside from bursting of the bubble rather than the upside from successful implementation of the reform program. Continue reading »
The 6th in our series of guest posts on the outlook for 2014 is by Michael Pettis
November’s Third Plenum proposed significant economic reforms to rebalance China’s economy and reduce its addiction to debt, in large part by reversing many of the processes that drove growth in the past three decades. Of course this potentially radical shift in China’s development model will make predicting economic performance in 2014 more difficult than ever.
And we have already seen how difficult reform is likely to be. The past four years were characterised by a stop-and-go process of decelerating growth, in which periodic attempts by the regulators to constrain credit caused the economy to slow sharply but, as policy makers backed off each time, both GDP and credit growth subsequently reignited, although at gradually declining paces. We will see this even more sharply in 2014, with a continued unstable balance between attempts to constrain credit growth and attempts to keep the economy from slowing too quickly. Continue reading »
The second in our series of guest posts on the outlook for 2014 is by Shujie Yao of Nottingham University
This year marked a significant shift in the mindset of China’s Communist Party. Oft-repeated promises to carve out a more sustainable development path finally translated into action as China’s new leadership abandoned breakneck growth pursued by its predecessors and moved to address the consequences of severe environmental degradation, unbalanced regional growth and social injustice.
The economy is predicted to have grown 7.5 per cent in 2013, the lowest rate of increase for more than a decade, and it promises to be much of the same in 2014. Many investors spoilt by double-digit Chinese growth that became commonplace even during one of the world’s most serious financial crises see the dip in growth as a weakness. Continue reading »
What’s the big deal with GDP anyway? While many economists and policy makers worldwide have recognised that there’s more to life than gross domestic product, it still remains the primary yardstick for measuring economic success.
But Chinese policy makers have decided that it’s not the be-all and end-all, certainly as far as local governments are concerned. This week, a department of the Chinese central committee announced that the success or failure of local authorities will be based on broader criteria than just plain growth. Good news for environmentalists and other groups – and with a greater focus on debt, investors should take note too. Continue reading »
By Michael Pettis
In October two Chinese academics presented research proposing that China’s National Bureau of Statistics under-reports the Chinese household consumption share of GDP, officially at 36 per cent, by ten to twelve percentage points. There have been other studies suggesting that consumption is understated in the official data (although by much lower amounts). Analysts who still doubt China’s need for significant economic reform have often claimed that consumption in China is much higher than the official data reports. These upward revisions show, they argue, that the consumption imbalance in China’s economy is not as bad as is often supposed, and so will not require a sharp slowdown in economic growth as China rebalances its economy.
There are at least three reasons to be sceptical about this argument. Continue reading »
By Ken Peng of Citi Private Bank
China must rebalance! Yes, everyone from President Barack Obama to your average Beijing taxi driver knows that. Around 48 per cent of China’s GDP is investment, just 36 per cent is household consumption, with government spending a bloated 13 per cent and net exports, 2 per cent. Whether through timely and painful reforms now or delayed reforms and disaster later, investment growth is expected to falter and consumption to be unable to pick up the slack.
But what if these basic assumptions are wrong? Continue reading »
China’s reform plan released after the Communist Party’s Third Plenum has been hailed as ambitious and bold. It certainly has far more in it than just the one-child policy reform and abolishment of labour camps. Here is beyondbrics’ summary of the plan, grouped by category. Continue reading »
By Shaomin Li of Old Dominion University
A quarter of a century ago in 1988, China’s one-child policy was in full swing and some side-effects had begun to show. Concerned about it, I wrote my doctoral dissertation examining this policy under the guidance of late professors Ansley Coale and Norman Ryder at Princeton, both founding fathers of demography as a scientific study. I was among the first to point out the major flaws of the policy, and my view then was regarded as quite heretic: I proposed an alternative two-child policy that could achieve the same population control goal as the one-child policy.
Needless to say, the Chinese government did not listen to me; now many of the social problems associated with the policy we worried about then have come to pass. It now seems the policy will be eased.
Twenty five years later, the findings and policy recommendations in my dissertation are still relevant and worth re-capping. Continue reading »